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PL Asset Management, the asset management arm of Prabhudas Lilladher Capital recommends that it is time to be in capital preservation and risk minimization mode rather than focusing on return maximization.
The report further adds that valuations indicate extreme polarity in equity markets, with over 50% of stocks trading above their 3-year average price to book (P/B). In September, the percentage of stocks outperforming the Nifty 500 reverted to 55% from 65%, which suggests a narrowing market breadth. The broad-based rally appears to be reverting to a narrower and more polarized market outperformance, said the report.
According to PL Asset Management’s proprietary quant models, the broader equity markets are expensive. The Nifty 50's trailing P/E ratio stands at 24.3x, which is 9% higher than its three-year average. In comparison, small-cap and mid-cap indices have trailing P/E ratios of 33.5x and 45.1x, reflecting premiums of approximately 18% and 34% over their three-year averages.
Consequently, relative momentum across assets has positioned gold as a favoured asset class. Central bank gold purchases, rate cuts, and geopolitical uncertainties are all contributing to rising prices for the yellow metal.
